Assignment on

CEMEX: growing and growing stronger case study (BUS 501)

Submitted by Maverick
Name Id Intake (MBA) Section
Md. Masuk 20213201026 52 01
Sobhan Adib
Mehedi Hasan 20213201064 52 01
Shovon
Farzana Islam 20213201006 52 01
Md. Rakib Khan 20213201025 52 01
Eshita Eshi 20213201001 52 01
Noshin Sharmili 20213201010 52 01
Shuchi

Submitted to
Mrs. Nasrin Shamima
Assistant Professor
Department of Management

Bangladesh University of Business & Technology (BUBT)

Date of Submission: 16th November, 2021
 Executive Summary
CEMEX was founded in the year 1906 in Mexico with headquarters in Monterrey.
The company grew over the years with diversification in mining, hotel and
petrochemicals whereas the main business was production and trading in cement.
The cement business was cyclical. The Company was facing challenges as regard
the further growth as the cement industry was consolidating at a faster pace and
also the worldwide production was increasing at a slow rate. This required the
company to sell off its non-core business so as to focus only on its cement business
and to stay competitive and enhance profitability. The company also launched a
very aggressive marketing strategy so as to seen by the maximum number of
people. Later the company launched its massive Information technology program
which was the need of the hour for smooth running of the business with timely and
accurate information to the management. The IT system was further strengthened
to facilitate its employees, suppliers and customers as regard accessing the
information from the company and for this a website of the company was also
launched. The use of the IT system helped the people to manage their time and
work. Mexico’s largest cement manufacturer, Cemex, has become a global
powerhouse in the cement and construction industry. It currently controls 60
percent of the cement industry in Mexico. Cemex’s success is a result of a
combination of efficient technology such as radio transmitters, satellites, and
computer hardware that allow the company to anticipate changes in supply and
demand and reduce waste. CEMEX’s success is also a result of an attempt to
dominate the industry by acquiring and buying out competitors worldwide in order
to expand. I believe that internalization theory best explains Cemex’s FDI because
Cemex has taken the initiative to enter into many countries and instead of
licensing; they bought domestic cement businesses and have grown into a
worldwide powerhouse. Internalization theory explains why firms often prefer
foreign direct investment over licensing as a strategy for entering foreign markets
with the advanced technology that Cemex uses, so licensing would not be the
greatest avenue for the company to take in order to protect it’s “technological
know-how” The case study has mentioned about the global cement industry,
developing the CEMEX way, learning to acquire abroad, systemizing. In order to
expand its business operations the company made a series of acquisitions as well as
international acquisitions to establish itself internationally because CEMEX
believed that international acquisition was to key to survive internationally. The
company focused on emerging markets to gain competitive advantage over its
competitors as well as global competitors. The Company was faced with the
challenge to integrate the newly acquired business for which a team, of talented
and experienced executives, was developed analyze and integrate the newly
acquired businesses. The company also focused on its people by imparting training
and motivating them by sharing part of the cost savings with them. With the advent
of globalization, the company was able to better manage the cyclical nature of the
cement industry. For further strengthening of the e-business strategy the company
launched a subsidiary and established CxNetworks to deploy a network of
businesses. The CEMEX way program was initiated which provided the company
with cost savings, integrating newly acquired company and information process
standardization, which encouraged its customers, employees and suppliers of the
company. Also, the case study mentioned about The global cement industry,
Developing ‘the CEMEX way’, Learning to acquire abroad, Systemizing the
acquisition process and finally New areas of international expansion. And finally
we have covered up all the questions required to solve the case by group studying
and brain storming.
TABLE OF CONTENTS

Contents Page No.

Question 1: What are the dynamics of industry concentration 1
in the cement industry? Has internationalization led to higher
concentration in the industry? Did the low consolidation level
provide a rationale for international M & amp;As?

Question 2: What were the major objectives of CEMEX’s 2

international acquisitions? Did CEMEX pursue any of the
alternative strategies proposed?

Question 3: What are CEMEX’s key FSAs? Has it been able to 3

diffuse these FSAs to all acquired entities?

Question 4: How did CEMEX integrate the firms it acquired? 4

Did CEMEX pay attention to the problems of distance during
the integration process?

Question 5: Can you provide an update on CEMEX’s 5-7

international acquisition strategy, using materials available on
the Web?

Conclusion 8
1|Page

Question 1: What are the dynamics of industry concentration in the

cement industry? Has internationalization led to higher concentration
in the industry? Did the low consolidation level provide a rationale for
international M & amp;As?

Answer: The cement industry used to be very fragmented and localized due to
the widespread availability of raw materials and the high costs of transportation.
Since the early 1980s the cement industry started to consolidate. Large companies
started to acquire smaller ones resulting in a couple of huge companies. The
internationalization led to more concentration because some companies, such as
CEMEX, grew to a huge size by acquiring foreign firms. This means that there is a
higher concentration because the number of companies will decrease if some big
companies form by acquiring others. Although some big companies have formed,
the industry remains fragmented with about 10,000 firms in the world. The low
consolidation level did provide a rationale for mergers and acquisitions because it
allowed companies to acquire smaller foreign firms, which meant that they could
spread the risk of fluctuating markets. This would have been more difficult with a
high consolidation level because acquiring or merging with another big company
comes at a high cost and a high risk.
2|Page

Question 2: What were the major objectives of CEMEX’s international

acquisitions? Did CEMEX pursue any of the alternative strategies
proposed?

CEMEX was driven by several major objectives in their pursuit of international

acquisitions. The first step was forged by an increase of international competition.
As more foreign cement producers began to invade the Mexican market, CEMEX
was forced to expand internationally in order to maintain its strong foothold in the
cement industry. Doing so, CEMEX focused on geographically proximate markets,
and later on culturally proximate markets. Moreover, CEMEX sought to obtain
new, unique and useful procedures through the acquisitions, and integrate them
into their business. Furthermore, the organization aimed to expand along the value
chain, in order to benefit from vertical integration. We discovered that none of the
management biases provided by Ghemawat and Ghadar clearly fit CEMEX.
However, we identified that several distinct approaches fit to their proposed
alternative strategies. Before fierce competition forced CEMEX to expand
internationally, the company started as a local Mexican producer, pursuing local
opportunities provided by cost-sensitive customers. Hence, CEMEX started with
one of the alternative strategies, identified as ‘Stay Home’. Moreover, the company
sought to continuously develop and exploit their key FSAs, which fits to the
alternative strategy described as ‘Keep Your Eye on the Ball’. Lastly, CEMEX
engaged in the strategy ‘Stalk Your Target’, as it expanded internationally only
after other companies did so. Therefore, the bias identified as ‘Herd Behavior’
does not apply to CEMEX, as the company did not merely follow and imitate their
competitors, but remained innovative and unique.
3|Page

CEMEX তাদের আন্তর্জাতিক অধিগ্রহণের সাধনায় বেশ কয়েকটি প্রধান

উদ্দেশ্য দ্বারা চালিত হয়েছিল। প্রথম ধাপটি আন্তর্জাতিক প্রতিযোগিতা
বৃদ্ধির মাধ্যমে জাল করা হয়েছিল। যত বেশি বিদেশী সিমেন্ট উৎপাদক
মেক্সিকান বাজারে আক্রমণ করতে শুরু করে, সিমেক্স সিমেন্ট শিল্পে তার দৃঢ়
পদচারণা বজায় রাখার জন্য আন্তর্জাতিকভাবে সম্প্রসারণ করতে বাধ্য হয়।
এটি করার ফলে, CEMEX ভৌগলিকভাবে নিকটবর্তী বাজারের উপর
এবং পরে সাংস্কৃ তিকভাবে নিকটবর্তী বাজারের উপর দৃষ্টি নিবদ্ধ করে।
অধিকন্তু, CEMEX অধিগ্রহণের মাধ্যমে নতু ন, অনন্য এবং দরকারী
পদ্ধতিগুলি পেতে এবং তাদের ব্যবসার সাথে একীভূ ত করার চেষ্টা
করেছিল। তদ্ব্যতীত, সংস্থাটি উল্লম্ব সংহতকরণ থেকে উপকৃ ত হওয়ার
জন্য মান শৃঙ্খল বরাবর প্রসারিত করার লক্ষ্য নিয়েছিল। আমরা আবিষ্কার
করেছি যে ঘেমাওয়াত এবং গদর দ্বারা প্রদত্ত ব্যবস্থাপনা পক্ষপাতের
কোনোটিই CEMEX-এর সাথে স্পষ্টভাবে মানানসই। যাইহোক, আমরা
চিহ্নিত করেছি যে বেশ কয়েকটি স্বতন্ত্র পদ্ধতি তাদের প্রস্তাবিত বিকল্প
কৌশলগুলির সাথে মানানসই। তীব্র প্রতিযোগিতা CEMEX কে
আন্তর্জাতিকভাবে সম্প্রসারণ করতে বাধ্য করার আগে, কোম্পানিটি স্থানীয়
মেক্সিকান প্রযোজক হিসাবে শুরু করে, খরচ-সংবেদনশীল গ্রাহকদের দ্বারা
প্রদত্ত স্থানীয় সুযোগগুলি অনুসরণ করে। তাই, CEMEX বিকল্প
কৌশলগুলির একটি দিয়ে শুরু করেছে, যা 'স্টে হোম' হিসাবে চিহ্নিত হয়েছে।
অধিকন্তু, কোম্পানি ক্রমাগতভাবে তাদের মূল FSAs বিকাশ ও কাজে
লাগাতে চেয়েছিল, যা 'বলে আপনার চোখ রাখুন' হিসাবে বর্ণিত বিকল্প
4|Page

কৌশলের সাথে খাপ খায়। সবশেষে, CEMEX 'স্টল্ক ইওর টার্গেট' কৌশলে
নিযুক্ত ছিল, কারণ অন্যান্য কোম্পানি তা করার পরেই এটি
আন্তর্জাতিকভাবে বিস্তৃ ত হয়েছে। তাই, 'হার্ড বিহেভিয়ার' হিসেবে চিহ্নিত
পক্ষপাতিত্ব CEMEX-এর ক্ষেত্রে প্রযোজ্য নয়, কারণ কোম্পানিটি শুধুমাত্র
তাদের প্রতিযোগীদের অনুসরণ ও অনুকরণ করেনি, বরং উদ্ভাবনী এবং
অনন্য ছিল।

Question 3: What are CEMEX’s key FSAs? Has it been able to diffuse
these FSAs to all acquired entities?

Answer: One of CEMEX’s key FSAs is its standardized acquisition protocol. The
company has some rules it set for itself to follow when an acquisition is possible.
They have to be able to integrate the target into its existing management. Secondly,
the investment should not negatively affect the firm’s financial benchmarks. And
thirdly, that the company has finished integrating past acquisitions. If a firm is
acquired it goes through a standardized integration process, which results in a very
high success rate. The differentiation strategy is another FSA. While the other
major cement companies were only selling in bulk, CEMEX came up with small
bags in order to accommodate individual, mostly poor customers. This is
something that helped to grow the company and something that other firms were
not able to do. Another FSA is the IT system of the company. Which was and is
better than the system most other companies used. CEMEX has been able to
diffuse its FSA’s to nearly all acquired companies. The company only made one
withdrawal when it was unable to gain the majority of shares for a firm in
Indonesia. However, in all other cases the companies it acquired were successfully
5|Page

integrated into the company, meaning that the acquisition FSA was successful for
all these companies from all around the world. This of course means that the IT
FSA also got transferred successfully.

Question 4: How did CEMEX integrate the firms it acquired? Did

CEMEX pay attention to the problems of distance during the
integration process?

Answer: CEMEX integrates acquired firms by using two key phases. In the first
phase CEMEX integrates the company’s IT. In the second phase ARIS
(Architecture of Integrated Information Systems) to compare the firm that is
acquired with CEMEX. The results of this determine the intensity of the post-
acquisition process. After these two phases a formalized integration process is
used. A team established to analyze the acquired firm and come up with
improvements. After this operational teams are sent to initiate change and raise the
performance to CEMEX levels. CEMEX paid attention to cultural distance factors
during their acquisitions. They started off with acquiring companies in countries
with a similar culture to ensure that the integration process was not hindered by
cultural differences. However, when the company became more experienced with
acquisitions distance factor became less important. The company has acquired and
successfully integrated firms with major distances from its home market. Besides
that, these companies were itself from very different backgrounds too. To
6|Page

illustrate: CEMEX has integrated firms from Egypt, the UK, Australia, Hungary,
Venezuela and the United States. These are all countries with different cultures.
Nonetheless CEMEX was able to integrate the firms from these countries

Question 5: Can you provide an update on CEMEX’s international

acquisition strategy, using materials available on the Web?

Answer: CEMEX became one of the largest cement producers in the world
because of focusing on acquiring different manufacturers all over the globe and
adding to the assortment of produced building materials. Acquisition is discussed
as the company’s main strategy, and it has particular features characteristic for the
CEMEX’s specific approach.

Thus, the corporation’s leaders choose the company to acquire while focusing on
such conditions as high expected returns, promising geographical presence, and
obvious contribution to CEMEX’s capital structure (Hill and Jones c337).

Rinker Group was selected according to these criteria as a profitable company that
helped to promote CEMEX’s position in the sphere of ready-mix products
(“Rinker Target Statement” 4).

The other important factor is the development of the integration that follows the
acquisition process.
7|Page

After the acquisition, CEMEX experts are oriented to examining the best practices
that are used in acquired companies, to standardizing the most effective
approaches, and to adopting or integrating them within the corporation’s
management and production process (Lessard and Reavis 6).

This approach is based on sharing resources and capabilities, and it can be

discussed as effective in order to integrate the most effective strategies, to enhance
the company’s development, to focus on innovation in production, to cut
operational and production costs, and to increase the overall efficiency (Hill and
Jones 345).

However, in relation to the Rinker Group acquisition, the standard strategy

followed by CEMEX was not effective, and the corporation faced the problem of
the debt burden. It is important to state that the problem was in the fact that the
acquisition was rather high-risk.

Concentrating on the possibilities for the geographical expansion, CEMEX

overestimated the economic advantages of the acquisition. CEMEX followed the

standard procedure of acquisition without paying attention to the changing

economic environments (Hill and Jones c339).

Furthermore, the overall costs of acquisition were extremely high, and risks
associated with the possible failure were also high. Pre-acquisition screening was
not appropriate to predict the experienced problems (Hill and Jones 372).

In this context, CEMEX became blocked in its attempts to generate and use free
cash flows, to use the advantages of synergies, and to use the post-merger
integration strategy effectively.
8|Page

CEMEX has a strong preference for acquisitions over greenfield ventures as an

entry mode to international markets due to its capacity to increase the efficiency
of the acquired units by transferring capital (financial and manpower),
technology, and/or management skills (Gable 33; King and Schriber 111). Indeed,
one of CEMEX’s guiding principles in undertaking international expansion is
anchored on the firm’s conviction that it can generate substantial value by
acquiring inefficient cement manufacturers in other international markets and
transferring its skills and expertise in customer service, marketing dynamics,
information and communication technology, as well as production management
to the acquired companies. As an example, CEMEX used the acquisition strategy
to purchase two stagnant plants in Spain and turned them back to profitability by
transferring its technological, management, and marketing know-how to the loss-
making outfits with the view to enhancing their performance over the long-term.

 
The best strategic option available to CEMEX is a strategic acquisition. The
strategic acquisition means to identify companies/industries whose takeover would
eventually benefit the firm in the long run. This particular strategy has helped
CEMEX in becoming a dominant player in the local market through the acquisition
of two leading Mexican cement manufacturers-Cementos Anáhuac (1987) and
Cementos Tolteca (1989). I believe CEMEX has enough knowledge on this
particular strategy and should go on with the same strategy in the future.

CEMEX has now got expertise as far as strategic acquisitions are concerned. - This
particular strategy has benefited CEMEX a lot in the past. It became a local giant
through the acquisition of Cementos Anáhuac (1987) and Cementos Tolteca
9|Page

(1989). The strategic acquisition was an elemental strategy used by CEMEX while
internationalizing its operations in the United States.- This would help CEMEX in
removing the fear of being overtaken by another cement giant

Conclusion
So finally, we can say that after solving the case the best strategic option available
to CEMEX is a strategic acquisition. The strategic acquisition means to identify
companies/industries whose takeover would eventually benefit the firm in the long
run. This particular strategy has helped CEMEX in becoming a dominant player in
the local market through the acquisition of two leading Mexican cement
manufacturers-Cementos Anáhuac (1987) and Cementos Tolteca (1989). I believe
CEMEX has enough knowledge on this particular strategy and should go on with
the same strategy in the future.CEMEX has now got expertise as far as strategic
acquisitions are concerned. - This particular strategy has benefited CEMEX a lot in
the past. It became a local giant through the acquisition of Cementos Anáhuac
(1987) and Cementos Tolteca (1989). The strategic acquisition was an elemental
strategy used by CEMEX while internationalizing its operations in the United
States.- This would help CEMEX in removing the fear of being overtaken by
another cement giant.
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